The Credit Ombudsman Service Limited (COSL) has published a position statement giving guidance as to how it will deal with a complaint that a consumer was provided with an unsuitable credit product.

The 27 page document sets outs COSL’s views on the law but emphasises that it is not a court but a dispute resolution scheme.

Its view on the enquiries that must be made regarding a consumer’s capacity to repay a loan is summarised as follows:

5.5 We are of the view that the information required to form a view on a consumer’s ability to repay a credit contract will be more than just a snapshot of their current financial position. It should include information that allows the person making the assessment to form a view on whether the consumer’s financial position could change during the term of the loan (and if so, how).
5.6 We do not propose to provide a checklist of the inquiries that should be made.
5.7 The obligation should be approached on the basis that it is necessary to make as many inquiries as are necessary to adequately understand the consumer’s financial position. It is valid to start with a checklist, but it is likely that other inquiries will also need to be made and these will vary from consumer to consumer; responses to initial inquiries may prompt further inquiries and so on until the person making the inquiries is satisfied that they have a full understanding of the consumer’s financial position.
5.8 Although an application for credit may satisfy a credit provider’s own policies for affordability, it does not necessarily mean that it meets the responsible lending standard in the legislation.

COSL also has regard to the complexity and risk of the product and the consumer’s capacity to understand the product.

If COSL finds that there has been a contravention of the responsible lending obligations, it may require the following actions, among others, to be taken:
(a) waiver or refund of fees and charges by the credit provider in return for the repayment of the principal sum lent under the credit contract;
(b) refund of any fees paid to a credit assistance provider who assisted the consumer into the unsuitable credit contract;
(c) variation of the repayments required under the credit contract so as to make them possible for the consumer without hardship; or
(d) release of the consumer entirely from the credit contract including any mortgage or security (subject to unjust enrichment).